Ellwest Stereo Theatres of Memphis, Inc., et al. - Page 9

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            no other documentation for these transactions.  Other payments                                 
            were evidenced by contracts, leases, and buy-sell agreements,                                  
            which Shindel reviewed.  Lacking expertise in foreign tax                                      
            matters, Shindel made inquiries in order to determine the tax                                  
            obligations arising from these payments.  He received the                                      
            impression that Tompkins, who was preparing most of the tax                                    
            returns at that time, was not knowledgeable about the reporting                                
            and withholding requirements for payments to foreign persons.                                  
            Nor was Shindel satisfied that his clients were sufficiently                                   
            sophisticated to determine the applicable requirements.                                        
            He sought expert advice from two outside attorneys, one a senior                               
            tax partner at a Michigan law firm and the other a tax partner at                              
            a Washington, D.C., firm.  His consultations with these attorneys                              
            concerning the payments at issue began either in early 1990 or in                              
            late 1991 or 1992.  The attorneys advised him orally of their                                  
            views; neither furnished Shindel a written opinion.  Shindel                                   
            advised Modern of the problems he had identified.  Petitioners                                 
            made no further payments to the related foreign corporations                                   
            after 1991.                                                                                    
                  Meanwhile, the IRS began an audit of several of petitioners                              
            in 1990.  The audit was conducted on Modern's premises by                                      
            Revenue Agent Berniece Petzold (Petzold).  In the late winter or                               
            early spring of 1993 Petzold questioned Shindel regarding certain                              
            canceled checks she had found that had been cashed abroad.  They                               
            discussed the reporting requirements applicable to these                                       

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